PERFECTION Flashcards
What is Perfection
Establishes a secured party’s rights in the collateral of a debtor
Perfection occurs when security interest is attached, and if all the perfection requirements have been met. If the requirements are met before attachment then then it is immediately perfected upon attachment
Law governing perfection of security interest is the jurisdiction where the debtor is located
How can perfection occur?
- Filing
- Possession
- Control
- Automatic Perfection
Filing
Filing a financing statement in a public office is the most common way to perfect security interest.
Filing general occurs in secretary of state’s office and in limited circumstances in the land records section of the county clerk where the property to be attached is located
Financing Statement
Filing that provides notice that a person has as security interest in the collateral indicated.
Requires:
- Name of debtor
- Name of Lendor
- Description of collateral covered by financing statement
Collateral Description requirements in Financing Statement
Description must reasonably identify the collateral OR include indication that the financing statement covers all assets or all personal property.
Super generic description is acceptable here unlike the security interest agreement
Security Interest vs. Financing Statement
Financing statement must be authorized by debtor.
Security Interest is authorization for the financing statement.
Special rules for fixtures
Fixtures are goods that are so related to real property that an interest in them passes under real estate law.
In addition to the financial statement requirements, fixture filings ALSO require:
- Indication that it cover fixtures
- Indication that is filed in the property records
- Description of the real property to which the future is related
- Provide real property owner’s name if different than the Article 9 debtor.
Effectiveness of Financing Statement
Financing Statement may be rendered ineffective if:
- Filed in the wrong place
- Does not include required information
- Not authorized by the debtor
- Minor errors if they cause the statement to be seriously misleading
PROCEEDS: A perfected security interest in collateral grants an automatic interest in proceeds (unless otherwise stated). This last for 20 days unless:
1.
NAME CHANGES:
Financial agreement will be generally effective if it becomes seriously misleading after filling. If the debtor changes his name, at which the lendor has 4 months to amend the financial statement.
MOVING:
If debtor moves to another state, the secured party must file a new financing statement in the new state within 4 months, otherwise it becomes unperfected.
5 YEARS:
Financial Statement will lapse after 5 years if no continuation statement is filed.
A continuing statement made 6 months before the expiration period extends the financial statement for another 5 years. Multiple continuing statements can be filed to extend the effectiveness of the financing statement.
Upon lapse the statement becomes ineffective and the security interest is perfected.
Perfection by Possession
A secured party may perfect a security interest by taking physical possession of the collateral.
Perfection by Possession Collateral Requirements
- Tangible negotiable goods
- Goods
- Instruments
- Money
- Tangible Chattel paper
Perfection by Control
Security interest may be perfect by taking control of the collateral.
Applies:
1. Investment securities
a. Security in bearer form - Requires physical possession
b. Security in registered form - Requires physical possession and endorsement to purchaser or registered in name of purchaser
- Letter-of-Credit rights
a. Requires issuer to consent to an assignment of proceeds of the letter of credit - Deposit Accounts and
a. Only perfected by control
b. Secured party has control of account if:
A. The party is the bank where the account is maintained
B. The debtor, secured party, and bank have have agreed in authenticated record that the bank will follow the secured party’s instructions directing the disposition of the fund in the deposit account without further consent
C. The secured party becomes the banks customer in respect to the deposit account - Electronic chattel paper
Automatic Perfection
There are limited instances where perfection is automatic.
- PMSI in Consumer Goods - Perfection is automatic as soon as the security interest attaches and remains effective permanently. (EXCLUDES motor vehicles and fixtures)
2, Assignment of accounts or payment intangibles that does not by itself or in conjunction with other assignments to the same assignee transfer a significant part of the assignor’s outstanding accounts or payment intangibles
Multiple Methods of Perfection
A security interest is perfected by one method and later perfected by another method without a period of interruption is perfected continuously.
